An interesting article on CNN Money suggests that Saudi Arabia’s – and therefore OPEC’s – commitment to oil production levels and prices may not be that strong in the future.
Later this month, OPEC and non-OPEC producers such as Russia will be discussing the extension of the current commitment to limit production. There are signs that adhering to an extension may not be on everyone’s mind but looking further into the future, the determination to keep prices up may be even weaker.
According to the CNN report which came out this week, Saudi government officials say the country is making good progress on a plan to break its oil dependency and won’t be bothered if the price drops to $40 a barrel by 2020.
“We will not really care much whether the price is 40, 45, 50, 55 at that time because we have gone significantly out of our way to be independent of the oil price,” Saudi finance minister Mohammed Al Jadaan is quoted as saying. “We are planning to totally [end] that dependency that we have been living for the last 40, 50 years. Hopefully by 2030, I wouldn’t care if the oil price is zero,” he said in the interview in Jeddah.
When Saudi Arabia allowed the price of oil to drop into free fall in 2015, the reason most quoted was to undercut US shale production. However, it is more plausible that the country was more driven by the view that the Paris talks later that year would result in some sort of agreement. For years the IEA has been saying that for the requested CO2 reduction levels to be met, some two thirds of fossil fuels will need to go unrecovered. On that basis, Saudi Arabia would never be able to exploit its natural wealth and so a move away from oil would be a natural consequence.
It of course remains to be seen what the future will hold for the price of oil and in the short term it is most likely that the price will remain somewhere at or below its current level of around $50 per barrel. That will be useful for the shipping industry struggling to keep freight rates at a sustainable level but not good news for the offshore sector.
In a completely separate report, this time in the UK’s Guardian newspaper, shipping’s image was further tarnished in a short report by Jeremy Pester in which the use of heavy fuel oil and 60,000 premature deaths by respiratory diseases was again linked.
The author of the report made the completely erroneous statement that shipping is the only industry not subject to any CO2 reduction targets. That conveniently ignores the fact that the mandatory EEDI regulations require all new ships to be 30% more efficient by 2025 compared with 2010. By contrast, the Paris Agreement only requires nations to set non-binding targets for national emissions without committing to any detail as to which industries, if any, will be expected to bear the brunt of any reductions.